Tag: Digital Banking

Management Notes

Augmented Reality in Banking

indiafreenotesby indiafreenotes0

AR is an experience where parts of users’ physical world are enhanced with computer-generated input. It can provide an interactive experience of a virtual environment in the real world.

Augmented reality solutions have the potential to substantially benefit the financial services industry. The future of mobile banking may involve apps that allow users to superimpose images and data over their real-world surroundings.

Banks that partner with fintech developers who can leverage augmented reality in banking use cases to offer greater convenience to their customers will be more likely to maintain and boost customer loyalty.

Need

Augmented realities allow users to cover digital information on top of the real-world environment. AR technology is partially immersive experience boosted by heads up display or existing smartphones. Banks and financial institutions can engage customers and create new immersive experiences through millions of existing compatible smartphones. AR can help financial service institutions to engage existing and new potential banking customers.

The need for AR in the banking sector can be deduced by the fact that it will provide consumers to view the information in a concise, engaging as well as in an immersive manner. The banks have found this challenging, and AR can help them in tackling this challenge.

Banks have also faced challenges with respect to enabling greater consumer choice and in providing greater visibility in terms of spending patterns and behaviors. It is another area where banks have encountered issues, but it is also an area where AR can have a profound impact as it will allow consumers to make informed decisions in terms of spending. It will provide customers with a new way of interpreting banking data and information.

Applications:

Virtual Trading

Some companies are making trading a virtual experience by creating virtual reality workstations for trading. Citi uses Microsoft HoloLens to give traders Holographic Workstations. This type of workstation offers 2D and 3D elements that add to the bank’s existing processes. Comarch uses virtual reality in their wealth management software to give users better access to algorithms and trading tools.

Data Visualization

Being able to visualize data is an important tool traders use to help them make important decisions about wealth management, especially as the financial industry becomes more complex and there is more data to analyze. AR and VR add to this experience and make it easier and faster to visualize and organize large amounts of data. Salesforce uses Oculus Rift to create an immersive 3D environment for analyzing data. Fidelity Labs, a part of Fidelity Investments, has also taken advantage of the technology behind Oculus Rift. They created a virtual world called “StockCity” where stock portfolios are turned into a virtual 3D city, where investors can immerse themselves in the data. Also read: Futures be augmented of virtual with AR/VR.

Virtual Branches

Digital-only banks and mobile banks are already here. But someday soon we may be able to go to a virtual bank. If customers are not able to visit a physical branch location for whatever reason, there will soon be given the possibility to go to a virtual branch. The hope is that these branches will be able to provide the same services but exclusively in a VR environment.

Virtual Reality Payments

Some companies are even making payments a virtual experience. MasterCard has partnered with Wearality to create a world where consumers can make purchases without leaving the virtual world. They have a virtual reality golf experience called ‘Priceless’ and players are able to buy clothing in the virtual world, without having to do anything offline.

Financial Education

For both employees and customers of financial institutions, education is important for understanding changes in financial systems. AR and VR have huge potential for teaching people new information in the VR Finance.

Security

In order to create a more secure customer experience, biometric security could be introduced in an AR system that could then connect with a VR world. These could be used to access VR bank services, make ATM transactions, or make payments.

Customer Service

Many financial institutions are also using AR and VR to help improve the experience of their customers. Many banks have AR apps that help customers find the nearest banks and ATMs. When in a city, they can scan the area with their phones and see real-time information about location, distance, and services at nearby banks.

Recruitment and Training

In order to provide high-quality services to customers, financial institutions need to make sure they are recruiting top talent and training all employees to give them skills that will help them do their jobs to the best of their abilities. Some banks are using a VR experience to show tech recruits how innovative and tech-savvy the bank is. Potential employees, as well as current employees, use this platform to form teams and create apps that will help the bank’s customers.

Management Notes

Robotic Process Automation in banking

indiafreenotesby indiafreenotes0

RPA is a technology used to automate manual business procedures to allow banks to stay competitive in a growing market. An RPA banking will provide customers with the ability to automatically process payments, deposits, withdrawals, and other banking transactions without the need for manual intervention. Banks are very quickly able to see an ROI from RPA.

RPA takes full form in banking as technology continues to grow. More and more people are using digital banking, cryptocurrency, and mobile payments. These are only some examples of RPA in banking. These Digital transformation projects remain at the top of the list for many banks and will continue to drive the overall technological growth of the banking process.

Intelligent Automation works in banking:

  • IA enables banks to automate complex end-to-end processes.
  • These processes typically involve the use of structured and unstructured data.
  • Thanks to AI and Machine Learning (ML), IA systems are able to communicate using human languages, classifying, and recognizing ‘sentiment’.
  • This understanding of sentiment or language enables IA to operate in a completely automated fashion, even automating workflow steps that would have previously required human intervention.

Role:

Customer Service

Banks deal with multiple queries every day ranging from account information to application status to balance information. It becomes difficult for banks to respond to queries with a low turnaround time.

RPA can automate such rule-based processes to respond to queries in real-time and reduce turnaround time to seconds, freeing up human resources for more critical tasks

With the help of artificial intelligence, RPA can also resolve queries that need decision-making. By using NLP, Chatbot Automation enables bots to understand the natural language of chatting with customers and respond like humans.

Credit Card Processing

Traditional credit card application processing used to take weeks to validate the customer information and approve credit cards. The long waiting period was dissatisfaction to customers and cost to banks. However, with the help of RPA, banks now can process the application within hours. RPA can talk to multiple systems simultaneously to validate the information like required documents, background checks, credit checks and take the decision based on rules to approve or disapprove the application.

Accounts Payable

Accounts payable is a simple but monotonous process in the banking system. It requires extracting vendor information, validating it, and then processing the payment. This does not require any intelligence making it the perfect case for RPA.

Robotic Process Automation with the help of optical character recognition (OCR) solutions can solve this problem. OCR can read the vendor information from the digital copy physical form and provide information to the RPA system. RPA will validate the information with the information in the system and process the payment. If any error occurs, RPA can notify the executive for resolution.

General Ledger

The banks must keep the general ledger updated with information like financial statements, revenue, assets, liabilities, expenses, and revenue which is used to prepare financial statements. Financial statements are the public documents that are then accessed by the public, stakeholders, and media. Considering the amount of detailed information in the statement, errors in the report can very badly affect the bank’s image.

To create the statement, the bank needs to update information from the multiple legacy systems as these systems cannot integrate, verify it and make sure that the general ledger is prepared with no errors. With this amount of data from multiple systems, it is bound to have errors. Here comes RPA to the rescue. RPA is independent of the technology and can integrate data from multiple legacy systems to present in the required format even if the data in the systems are not in the same format. This reduces the huge amount of data handling and time.

Report Automation

Like all other public companies, banks need to prepare reports and present them to their stakeholders to show their performance. Considering the importance of the report, there is no chance for the bank to make an error.

While RPA systems provide data in multiple formats, they can create reports by auto-filling the available report format to create reports without errors and minimum time

Account Closure Process

With such a huge number of customers, it is supposed to get some account closure requests monthly. There can be various reasons for the account closures and one of them is when a client has failed to provide the mandatory documents.

With Robotic Process Automation, it is easy to track such accounts, send automated notifications, and schedule calls for the required document submissions. RPA can also help banks to close accounts in exceptional scenarios like customers failing to provide KYC documents.

Fraud Detection

With the introduction of digital systems, one of the major concerns of banks is fraud. It is really difficult for banks to track all the transactions to flag the possible fraud transaction. Whereas RPA can track the transactions and raise the flag for possible fraud transaction patterns in real-time reducing the delay in response. In certain cases, RPA can prevent fraud by blocking accounts and stopping transactions.

KYC Process

Know Your Customer (KYC) is a mandatory process for banks for every customer. This process includes 500 to 1000+ FTEs to perform necessary checks on the customers. According to Thomson Reuters, banks spend more than $384 million per year on KYC process compliance.

Considering the cost of the manual process, banks have started using RPA to validate customer data. With increased accuracy, banks no longer have to worry about the FTEs and the process can be completed with minimal errors and staff.

Management Notes

Origin of Bank, Meaning and Definition, Features of Banks

indiafreenotesby indiafreenotes3

Bank is a financial institution that accepts deposits from the public, provides loans, and offers various financial services such as wealth management, investment, and currency exchange. Banks act as intermediaries between savers and borrowers, ensuring the efficient allocation of funds in the economy. They play a crucial role in economic stability and growth by facilitating transactions, offering credit, and managing risks. In India, banks are regulated by the Reserve Bank of India (RBI) to ensure financial stability and protect the interests of depositors. Types of banks include commercial banks, cooperative banks, and specialized institutions like development banks.

Definitions:

  • According to R.S. Sayers, “Banks are institutions whose debts are commonly accepted in final settlement of other peoples debts.”
  • Oxford Dictionary defines a bank as “an establishment for custody of money, which it pays out on customer’s order.”
  • According to Peter Rose, “Bank is financial intermediary accepting deposits and granting loans.”
  • According to F.E. Perry, “Bank is an establishment which deals in money, receiving it on deposit.”
  • According to R.P. Kent, “Bank is an institution which collects idle money temporarily from the public and lends to other people as per need.”
  • According to P.A. Samuelson, “Bank provides service to its clients and in turn receives perquisites in different forms.”
  • According to Cairn Cross, “Bank is an intermediary financial institution which deals in loans and advances.”
  • According to W. Hock, “Bank is such an institution which creates money by money only.”

Origin of Bank:

The origin of banking in India traces its roots to ancient times when financial activities were carried out through moneylenders and merchant guilds. During the Vedic period (1500-500 BCE), practices of lending and borrowing were prevalent, and the concept of “srenis” (merchant guilds) emerged. These guilds facilitated trade, and their members acted as bankers by providing loans and credit.

The modern banking system in India, however, evolved during the British colonial period. The first bank established in India was the Bank of Hindustan, founded in 1770 in Calcutta (now Kolkata). Though it failed in 1830, it marked the beginning of formal banking activities. In 1806, the General Bank of India was established, followed by the Bank of Bengal in 1809, which eventually merged into the Imperial Bank of India in 1921 (later known as the State Bank of India).

The pivotal moment in India’s banking history came in 1935 with the founding of the Reserve Bank of India (RBI). The RBI was established as the central banking institution to regulate the monetary and credit system, ensuring economic stability and growth. In post-independence India, the banking sector underwent significant reforms, most notably the nationalization of banks in 1969. This was aimed at making credit more accessible to the rural and underserved populations.

Since then, the Indian banking system has grown and diversified, with the introduction of private sector banks (like HDFC and ICICI), foreign banks, and regional rural banks, all regulated by the RBI, fostering a modern and robust banking ecosystem.

Features of Banks:

1. Accepting Deposits

One of the primary functions of banks is accepting deposits from individuals, businesses, and institutions. Banks offer various types of deposit accounts, such as savings accounts, current accounts, and fixed deposits. These deposits provide a safe place for customers to store their money while earning interest on certain types of accounts, such as savings and fixed deposits. This feature makes banks a trusted institution for safeguarding funds.

2. Providing Loans and Credit

Banks lend money to individuals, businesses, and governments, facilitating investment and consumption. The loan types include personal loans, home loans, education loans, business loans, and agricultural loans. Banks charge interest on these loans, which is a major source of income for them. By lending money, banks stimulate economic growth, enabling the expansion of businesses, homeownership, and personal development.

3. Financial Intermediation

Banks act as intermediaries between savers and borrowers. They pool the savings from individuals who deposit money and then lend it to those who need funds. This process helps in the efficient allocation of resources, fostering economic growth. Banks, by offering a return on deposits and earning interest from loans, create a symbiotic relationship between those who save and those who borrow.

4. Risk Management

Banks help in managing and mitigating various types of financial risks. Through services such as insurance, derivatives, and hedging, banks provide protection to both individuals and businesses from unforeseen risks, such as economic downturns, natural disasters, or market fluctuations. By spreading and diversifying risks, banks contribute to financial stability in the economy.

5. Facilitating Payments

Banks provide a variety of payment services, making it easier for individuals and businesses to transfer funds. This includes cheque services, Electronic Funds Transfers (EFT), Real-Time Gross Settlement (RTGS), Immediate Payment Service (IMPS), and online banking. These payment methods are integral to trade, commerce, and personal financial management, reducing the need for physical cash transactions and promoting a digital economy.

6. Currency Issuance

In India, the Reserve Bank of India (RBI) issues currency notes, but commercial banks play a key role in ensuring the circulation and distribution of currency. Banks provide customers with the required denomination of currency for daily transactions. They also manage the withdrawal and deposit of cash, ensuring an efficient cash flow within the economy.

7. Wealth Management and Investment Services

Banks offer a wide range of wealth management services, including investment advice, portfolio management, and the sale of investment products such as mutual funds, bonds, and fixed deposits. They also provide retirement planning and tax-saving products. These services help customers grow their wealth and plan for the future, offering guidance and access to diverse investment opportunities.

8. Regulation and Security

Banks are regulated by central authorities such as the Reserve Bank of India (RBI) in India, ensuring they maintain financial stability, sound lending practices, and consumer protection. Banks are also required to adhere to strict guidelines related to capital adequacy, liquidity, and risk management. The regulatory framework ensures the security of deposits and minimizes the risk of bank failures.

Management Notes

Foreign Banks, Role, Functions, Advantages, Disadvantages

indiafreenotesby indiafreenotes0

Foreign banks play a crucial role in India’s financial ecosystem, offering specialized services, advanced technologies, and global expertise. These banks operate under the regulations of the Reserve Bank of India (RBI) and contribute to the growth of international trade, foreign investment, and the adoption of modern banking practices in the country.

Roles of Foreign Banks

  • Promoting International Trade

Foreign banks facilitate international trade by providing essential financial services like letters of credit, trade finance, and forex services. They act as a bridge between Indian businesses and global markets, ensuring smooth transactions across borders.

  • Encouraging Foreign Investments

By catering to multinational corporations and foreign investors, foreign banks attract and manage foreign direct investment (FDI) and portfolio investments. Their expertise in global financial markets makes them a preferred partner for foreign investors.

  • Introducing Advanced Banking Practices

Foreign banks bring innovative products, advanced technology, and international best practices to India. Their services, such as digital banking, mobile payments, and AI-driven analytics, set high standards for the banking industry.

  • Providing Specialized Financial Services

Foreign banks offer niche financial services, such as wealth management, investment banking, and treasury management, catering to high-net-worth individuals (HNWIs), corporations, and institutional investors.

  • Enhancing Competition in the Banking Sector

The presence of foreign banks increases competition in the Indian banking system. This drives domestic banks to improve service quality, adopt new technologies, and enhance operational efficiency.

  • Strengthening India’s Integration with the Global Economy

Foreign banks help Indian businesses and individuals access global financial systems. They provide exposure to international markets and help integrate India into the global financial framework.

  • Channeling Global Expertise for Local Growth

With their international exposure, foreign banks contribute to the development of India’s financial infrastructure. They provide insights into global market trends, risk management strategies, and economic policies that benefit the local economy.

Functions of Foreign Banks

  • Acceptance of Deposits

Foreign banks mobilize deposits from customers, including individuals, corporations, and institutions. They offer various deposit products, such as savings accounts, current accounts, and term deposits, often tailored for international clients.

  • Providing Credit Facilities

Foreign banks extend credit to businesses, individuals, and multinational corporations. Their loans are typically geared toward trade finance, project financing, and working capital needs, with a focus on international operations and cross-border activities.

  • Facilitating Foreign Exchange Transactions

One of the primary functions of foreign banks is offering foreign exchange services. They assist businesses and individuals in currency conversion, hedging foreign exchange risks, and managing international remittances.

  • Offering Investment Banking Services

Foreign banks play a significant role in providing investment banking solutions, including mergers and acquisitions (M&A), equity issuance, debt restructuring, and corporate advisory services. These functions support corporate growth and capital market activities.

  • Treasury and Risk Management

Foreign banks manage their clients’ financial risks, such as currency, interest rate, and commodity price risks, through their treasury operations. They provide sophisticated financial instruments like derivatives and swaps to help clients mitigate risks.

  • Wealth and Asset Management

Foreign banks cater to HNWIs and institutional investors by offering wealth management and asset allocation services. They help clients build diversified portfolios, manage investments, and achieve long-term financial goals.

  • Supporting Corporate and Institutional Banking

Foreign banks specialize in corporate banking services, including cash management, trade finance, and customized credit solutions. They also cater to the needs of multinational corporations, offering expertise in international financial systems.

Advantages

  • Foreign banks enter host countries with new technology that contributes to the country’s technological development.
  • The entry of foreign banks has a positive impact on the regulatory and supervisory regimes of the host country because they will be able to learn about the regulatory and supervisory regimes of foreign banks’ home countries.
  • Foreign banks have a greater ability to invest in more sectors than domestic banks in the host country because they have a larger economic scale and risk diversification techniques.
  • The presence of a foreign bank in a developing country also contributes to the transmission of best practices in the banking industry.
  • The entry of a foreign bank increases competition, which has an automatic positive impact on the development of the country’s banking sector.
  • Over the years, foreign banks have made significant contributions to the banking sector by bringing capital and global best practices, as well as grooming talent.

Challenges Faced by Foreign Banks

  • Regulatory Constraints:

Operating under stringent RBI regulations, foreign banks must adapt their global practices to local requirements.

  • Limited Branch Networks:

Foreign banks typically have fewer branches, restricting their reach in rural and semi-urban areas.

  • High Competition:

They face stiff competition from established domestic banks and financial technology (fintech) companies.

Some foreign banks in India:

  1. Citibank
  2. Standard Chartered Bank
  3. HSBC (Hongkong and Shanghai Banking Corporation)
  4. Deutsche Bank
  5. Barclays Bank
  6. Bank of America
  7. Royal Bank of Scotland (RBS)
  8. JP Morgan Chase Bank
  9. BNP Paribas
  10. DBS Bank
  11. UBS Bank
  12. Credit Suisse
  13. Wells Fargo Bank
  14. Societe Generale
  15. Industrial and Commercial Bank of China (ICBC)
  16. Mizuho Bank
  17. Sumitomo Mitsui Banking Corporation (SMBC)
  18. CIMB Bank
  19. Mashreq Bank
  20. ANZ Bank (Australia and New Zealand Banking Group)
Management Notes

Meaning, Definitions and Features of Banking

indiafreenotesby indiafreenotes0

Banking is a financial system that facilitates the management of money through deposits, lending, and investment services. Banks act as intermediaries between depositors and borrowers, ensuring liquidity and economic stability. They provide essential services such as savings and current accounts, loans, credit facilities, and digital banking. The banking sector includes commercial banks, central banks, cooperative banks, and development banks. With technological advancements, innovations like online banking, mobile banking, and fintech solutions have transformed traditional banking operations. The banking system plays a crucial role in economic growth by supporting businesses, individuals, and governments in financial transactions and wealth management.

Definitions of Banking:

  • Reserve Bank of India (RBI):

“Banking means accepting, for the purpose of lending or investment, of deposits of money from the public, repayable on demand or otherwise, and withdrawable by cheque, draft, order, or otherwise.” (Banking Regulation Act, 1949)

  • Oxford Dictionary:

“Banking is the business conducted or services offered by a bank, including receiving, lending, exchanging, and safeguarding money.”

  • Dr. Hart:

“A bank is one that in the ordinary course of its business receives money which it pays by honoring cheques of persons from whom or on whose account it receives it.”

  • Prof. John Paget:

“No person or body, corporate or otherwise, can be a banker who does not (1) take deposit accounts, (2) take current accounts, (3) issue and pay cheques, and (4) collect cheques, crossed and uncrossed, for its customers.”

  • Prof. Crowther:

“A bank is an institution which collects money from those who have it to spare and lends it to those who require it.”

  • World Bank:

“Banks are financial intermediaries that accept deposits from individuals, businesses, and other entities and use those funds to provide loans, investments, and other financial services.”

Features of Banking:

  • Acceptance of Deposits

Banks accept deposits from individuals, businesses, and institutions to safeguard their funds. These deposits can be of various types, such as savings accounts, current accounts, fixed deposits, and recurring deposits. Customers earn interest on their savings, while banks use these funds for lending and investment purposes. Deposit acceptance is a primary function that ensures liquidity and financial security for both depositors and the economy.

  • Lending of Funds

Banks provide loans and credit facilities to individuals, businesses, and governments for various purposes, such as personal needs, business expansion, and infrastructure development. Lending helps in capital formation and economic growth. Loans can be short-term or long-term, and banks charge interest on them. Different types of loans include personal loans, home loans, business loans, and agricultural loans, contributing to financial stability and development.

  • Payment and Settlement System

Banks facilitate seamless financial transactions through various payment and settlement systems. These include issuing cheques, demand drafts, electronic fund transfers (NEFT, RTGS), and digital payments. With technological advancements, online and mobile banking have revolutionized payment systems, making transactions faster, safer, and more convenient. Efficient payment mechanisms help individuals and businesses manage their financial activities effectively and ensure smooth economic operations.

  • Financial Intermediation

Banks act as intermediaries between depositors and borrowers by channeling surplus funds from savers to those in need of credit. This function enhances capital utilization and supports investment opportunities. By mobilizing savings and providing loans, banks contribute to economic growth. They also help regulate money supply and credit availability, ensuring financial stability in the market. This intermediary role makes banks a crucial pillar of the financial system.

  • Risk Management and Security

Banks provide a secure environment for financial transactions and deposits, reducing the risks associated with cash handling. They implement strong cybersecurity measures, fraud detection systems, and risk management frameworks to protect customers’ funds and confidential information. Additionally, banks offer insurance-linked financial products to mitigate financial risks for individuals and businesses, ensuring a reliable and trustworthy financial ecosystem.

  • Foreign Exchange Transactions

Banks facilitate foreign exchange transactions by offering services like currency exchange, international remittances, and trade financing. They help businesses and individuals in cross-border transactions, ensuring smooth international trade and investments. Commercial banks, along with central banks, play a vital role in maintaining foreign exchange reserves and stabilizing currency exchange rates, thus supporting the country’s economic policies and global financial interactions.

  • Creation of Credit

Banks create credit by lending money to customers based on deposits received. This process increases the money supply in the economy and supports business expansion and economic growth. By issuing loans and advances, banks generate additional purchasing power, influencing economic activities. The credit creation process is fundamental to banking operations as it fuels investments, production, and overall economic development.

  • Digital and Technological Innovations

With rapid advancements in technology, banks have introduced digital banking, mobile banking, internet banking, and automated teller machines (ATMs). Innovations like fintech integration, artificial intelligence, blockchain, and biometric authentication have enhanced security, convenience, and efficiency in banking operations. Digital banking solutions have transformed traditional banking services, offering customers 24/7 access to financial products and services, thereby improving financial inclusion and customer satisfaction.

Management Notes

Types of Bankers

indiafreenotesby indiafreenotes0

Bankers play different roles in the financial system, catering to individuals, businesses, and governments. They facilitate banking transactions, manage funds, provide credit, and ensure the smooth functioning of financial operations.

  • Commercial Banker

A commercial banker operates in the public or private banking sector, offering financial services like savings accounts, loans, fixed deposits, and credit facilities. They serve individuals, businesses, and corporations by providing essential banking products. Commercial bankers play a crucial role in economic growth by mobilizing savings, offering working capital to businesses, and facilitating trade finance. They ensure efficient fund management and risk mitigation while complying with regulatory guidelines.

  • Investment Banker

Investment bankers specialize in capital markets, mergers and acquisitions, and corporate financing. They assist companies in raising funds by issuing stocks, bonds, and other securities. They also provide advisory services on financial restructuring, asset management, and strategic investments. Investment bankers play a key role in economic development by facilitating capital flow, promoting corporate expansion, and ensuring liquidity in financial markets. Their expertise in risk assessment helps businesses make informed financial decisions.

  • Central Banker

A central banker works for a nation’s central bank, such as the Reserve Bank of India (RBI), the Federal Reserve (USA), or the European Central Bank (ECB). They regulate monetary policy, control inflation, issue currency, and ensure financial stability. Central bankers also oversee commercial banks, implement interest rate policies, and maintain foreign exchange reserves. Their primary goal is to ensure economic stability, promote growth, and manage liquidity in the banking system.

  • Retail Banker

Retail bankers focus on providing banking services to individual consumers rather than businesses or corporations. They manage services like savings and current accounts, personal loans, mortgages, credit cards, and wealth management. Retail bankers work in branches or online banking platforms to assist customers with their financial needs. Their primary goal is to enhance customer experience, offer personalized financial solutions, and build long-term relationships through tailored banking services.

  • Private Banker

Private bankers cater to high-net-worth individuals (HNWIs) by offering personalized financial services, including wealth management, tax planning, estate management, and investment advisory. They provide exclusive banking privileges, specialized loan structures, and investment strategies to preserve and grow clients’ wealth. Private banking is highly relationship-driven, ensuring confidentiality and customized financial solutions for affluent clients who require specialized attention and risk management strategies.

  • Merchant Banker

Merchant banker provides financial services to corporations, including underwriting, business loans, mergers and acquisitions advisory, and fundraising assistance. They focus on private equity investments, corporate restructuring, and foreign exchange management. Merchant bankers help companies expand by offering financial expertise and capital solutions. They play a significant role in supporting business growth by structuring deals, negotiating investments, and ensuring smooth capital transactions in domestic and international markets.

  • Cooperative Banker

Co-operative banker operates within cooperative banks, which serve small businesses, farmers, and rural communities. They provide financial support for agriculture, self-employment, and small enterprises through low-interest loans and microfinance services. Cooperative bankers focus on financial inclusion, ensuring that underprivileged sections of society have access to credit and banking facilities. These banks operate on a mutual benefit principle, where members contribute capital and share profits collectively.

  • Offshore Banker

Offshore bankers provide banking services in jurisdictions with favorable financial regulations, such as low taxes and high confidentiality. Offshore banking is popular among international businesses and high-net-worth individuals for asset protection and wealth management. These banks offer multi-currency accounts, investment advisory, and estate planning services. Offshore bankers help clients manage cross-border financial transactions while ensuring compliance with international tax and financial laws.

Management Notes

Narasimhan Committee Recommendations

indiafreenotesby indiafreenotes2

The Narasimham Committee (1991) was formed to reform India’s banking sector post-liberalization. It recommended reducing SLR (Statutory Liquidity Ratio) and CRR (Cash Reserve Ratio), introducing prudential norms for NPAs, and promoting operational autonomy for banks.

The second Narasimham Committee (1998) focused on strengthening banking governance, suggesting mergers of weak banks, higher foreign bank participation, and stricter risk management. These reforms enhanced financial stability, improved credit efficiency, and paved the way for a modern, competitive banking system in India.

  • Reduction in Statutory Liquidity Ratio (SLR) and Cash Reserve Ratio (CRR)

The committee recommended reducing SLR and CRR to increase the availability of credit in the economy. Lowering these reserve requirements allowed banks to lend more to businesses and individuals, enhancing economic growth and financial sector efficiency by ensuring better fund utilization.

  • Phased Reduction of Priority Sector Lending (PSL)

The committee suggested gradually reducing mandatory priority sector lending to enhance banking efficiency. It proposed limiting PSL to 10% of total credit while focusing on genuinely deserving sectors like agriculture and small businesses, ensuring that credit allocation was more market-driven rather than being dictated by government policies.

  • Capital Adequacy Norms

To strengthen the financial health of banks, the committee recommended adopting international capital adequacy norms based on the Basel framework. It suggested that banks maintain a minimum capital-to-risk-weighted assets ratio (CRAR) to ensure financial stability and resilience against economic shocks, thus improving banking sector robustness.

  • Autonomy to Public Sector Banks

The committee recommended granting more autonomy to public sector banks (PSBs) in decision-making, reducing political interference. This included allowing banks to set their own policies, manage recruitment, and make lending decisions based on commercial viability, helping PSBs become more competitive and efficient.

  • Rationalization of Branch Licensing Policy

To promote operational efficiency, the committee suggested relaxing branch licensing policies. Instead of government-mandated branch expansion, banks should be allowed to open or close branches based on business potential and profitability. This would help banks focus on viable locations and optimize resource allocation.

  • Strengthening of the Banking Supervision System

The committee recommended improving banking supervision by setting up the Board for Financial Supervision (BFS) under the Reserve Bank of India (RBI). This was aimed at ensuring better monitoring of banking operations, enforcing prudential norms, and reducing frauds, thereby enhancing the overall health of the banking sector.

  • Encouraging the Entry of Private and Foreign Banks

To enhance competition and efficiency, the committee recommended allowing private sector and foreign banks to operate in India. This led to better financial services, improved customer experience, and increased efficiency in the banking system by introducing modern technology and global best practices.

  • Asset Classification and Provisioning Norms

The committee emphasized the need for stricter asset classification and provisioning norms to address the problem of non-performing assets (NPAs). Banks were required to categorize loans based on their recovery status and make adequate provisions for bad loans, ensuring transparency and financial discipline.

  • Debt Recovery Mechanisms

To resolve bad debts, the committee recommended establishing special tribunals for speedy recovery of non-performing loans. This led to the creation of Debt Recovery Tribunals (DRTs), which helped banks recover dues faster and improved financial discipline among borrowers, reducing the burden of NPAs.

  • Establishment of Asset Reconstruction Companies (ARCs)

To deal with mounting NPAs, the committee suggested the formation of Asset Reconstruction Companies (ARCs). These companies would buy bad loans from banks and recover them efficiently. This allowed banks to clean up their balance sheets and focus on fresh lending.

  • Reduction in Government Ownership in Banks

The committee recommended reducing government stake in public sector banks to below 50%, allowing for greater private participation. This aimed to improve efficiency, accountability, and competitiveness, as banks would operate based on market principles rather than government control.

  • Development of Government Securities Market

The committee suggested strengthening the government securities (G-Secs) market to make it more transparent and efficient. It proposed a shift towards market-determined interest rates on government borrowing, reducing reliance on captive funding from banks and promoting competition in the financial system.

  • Technology Upgradation in Banking

Recognizing the role of technology in improving banking efficiency, the committee recommended digitization and automation of banking processes. This included the introduction of computerized banking operations, electronic fund transfers, and online banking services to enhance customer experience and operational efficiency.

  • Adoption of Universal Banking

The committee suggested that banks diversify their operations to include investment banking, insurance, and other financial services. This concept of universal banking aimed to make financial institutions more resilient and capable of catering to a wide range of customer needs under one roof.

  • Strengthening Rural and Cooperative Banking System

To improve credit access in rural areas, the committee recommended restructuring rural and cooperative banks. It emphasized better governance, financial discipline, and reduced political interference to ensure that these institutions could effectively support agriculture and rural enterprises.

  • Phased Deregulation of Interest Rates

The committee recommended a gradual move toward market-driven interest rates. Instead of government-imposed rates, banks should be allowed to determine lending and deposit rates based on market conditions, leading to more efficient credit allocation and financial stability.

  • Introduction of Risk Management Practices

To enhance financial sector resilience, the committee stressed the need for better risk management systems in banks. It proposed the adoption of global best practices in credit risk assessment, operational risk management, and liquidity risk management to ensure long-term stability.

  • Mergers and Consolidation of Banks

To create stronger financial institutions, the committee recommended the consolidation of weaker banks through mergers and acquisitions. This would help build a more robust banking sector capable of competing globally while reducing operational inefficiencies and risks.

  • Improving Governance in Banks

The committee emphasized the need for improved governance in banks by reducing bureaucratic control and enhancing the role of professional management. It recommended independent boards, better internal control mechanisms, and performance-based evaluation of bank executives.

  • Enhancing the Role of RBI as a Regulator

The committee proposed that the RBI should focus more on its role as a regulator rather than a direct participant in financial markets. Strengthening its supervisory and policy-making functions would help maintain financial stability and ensure that banks followed prudential norms effectively.

Bangalore University B.com Notes

Secondary Market Meaning, Role, Function, Structure, Players

indiafreenotesby indiafreenotes2

Secondary Market refers to the financial marketplace where existing securities, previously issued in the primary market, are bought and sold among investors. It provides a platform for individuals and institutions to trade stocks, bonds, and other financial instruments after their initial issuance. Unlike the primary market, which involves the issuance of new securities, the secondary market facilitates the resale and exchange of already-existing securities. Stock exchanges, such as the Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE) in India, are key components of the secondary market, providing the infrastructure for transparent and organized trading activities. The secondary market enhances liquidity, price discovery, and market efficiency.

Small investors have a much better chance of trading securities on the secondary market since they are excluded from IPOs. Anyone can purchase securities on the secondary market as long as they are willing to pay the asking price per share.

A broker typically purchases the securities on behalf of an investor in the secondary market. Unlike the primary market, where prices are set before an IPO takes place, prices on the secondary market fluctuate with demand. Investors will also have to pay a commission to the broker for carrying out the trade.

The volume of securities traded varies from day to day, as supply and demand for the security fluctuates. This also has a big effect on the security’s price.

Because the initial offering is complete, the issuing company is no longer a party to any sale between two investors, except in the case of a company stock buyback. For example, after Apple’s Dec. 12, 1980, IPO on the primary market, individual investors have been able to purchase Apple stock on the secondary market. Because Apple is no longer involved in the issue of its stock, investors will, essentially, deal with one another when they trade shares in the company.

Role of Secondary Market

  • Maintaining the Fair Price of Shares

The secondary market is a market of already issued securities after the initial public offering (IPO). Capital markets run on the basis of supply and demand of shares. Secondary markets maintain the fair price of shares depending on the balance of demand and supply. As no single agent can influence the share price, the secondary markets help keep the fair prices of securities intact.

  • Facilitating Capital Allocation

Secondary markets facilitate capital allocation by price signaling for the primary market. By signaling the prices of shares yet to be released in the secondary market, the secondary markets help in allocating shares.

  • Offering Liquidity and Marketability

Second-hand shares are of no use if they cannot be sold and bought for liquid cash whenever needed. The shareholders usually use the share markets as the place where there is enough liquidity and marketability of shares. That means that the secondary markets play the role of a third party in the exchange of shares.

Without a secondary market, the buyers and sellers would be left with a self-exchange in one-to-one mode that is not quite effective till now. Therefore, the secondary market is a facilitating body of liquidity and marketability for the shareholders.

  • Adjusting the Portfolios

Secondary markets allow investors to adapt to adjusting portfolios of securities. That is, the secondary markets allow investors to choose shares for buying as well as for selling to build a solid portfolio of shares that offers maximum returns. Investors and shareholders can change their investment portfolios in secondary markets that cannot be done anywhere else.

Functions of Stock Market

  1. Capital Formation:

Primary Market: The stock market facilitates the primary market, where companies raise capital by issuing new securities, such as stocks and bonds. This process allows businesses to fund expansion, research, and other capital-intensive activities.

  1. Secondary Market Trading:

Liquidity Provision: The secondary market provides a platform for investors to buy and sell existing securities, enhancing liquidity. Investors can easily convert their investments into cash, and this liquidity contributes to market efficiency.

  1. Price Discovery:

Market Valuation: The stock market plays a crucial role in determining the fair market value of securities through the continuous buying and selling of shares. This price discovery process reflects investor perceptions of a company’s performance and future prospects.

  1. Facilitation of Investment:

The stock market encourages savings and investment by providing individuals and institutions with opportunities to invest in a diversified portfolio of securities. This helps channel funds from savers to productive enterprises.

  1. Ownership Transfer:

Investors can easily buy and sell securities, allowing for the transfer of ownership in a transparent and regulated manner. This facilitates the transfer of funds between investors and supports portfolio diversification.

  1. Borrowing and Lending:

The stock market serves as a platform for companies to raise funds by issuing bonds. Investors who purchase these bonds essentially lend money to the issuing companies, creating an additional avenue for corporate financing.

  1. Market Indicators:

The performance of stock indices, such as the Nifty 50 and the Sensex in India, serves as indicators of the overall health and sentiment of the financial markets and the economy at large.

  1. Corporate Governance:

Stock markets impose certain listing requirements on companies, promoting transparency and adherence to corporate governance standards. Companies with publicly traded shares are often subject to higher scrutiny, enhancing investor confidence.

  1. Dividend Distribution:

Companies listed on stock exchanges can distribute dividends to their shareholders, providing a return on investment. Dividends are a key factor influencing investment decisions and shareholder wealth.

10. Risk Mitigation:

Investors can manage risk through diversification, buying and selling securities, and utilizing various financial instruments available in the stock market, such as options and futures.

11. Economic Indicator:

The stock market’s performance is often considered a barometer of economic health. Bullish markets are associated with economic optimism, while bearish markets may reflect concerns about economic conditions.

12. Market Efficiency:

The stock market allocates resources efficiently by directing capital to companies with the most promising growth prospects. Efficient market mechanisms contribute to the optimal allocation of resources within the economy.

13. Facilitation of Mergers and Acquisitions:

The stock market plays a role in corporate restructuring by facilitating mergers and acquisitions. Companies can use their shares for acquisitions, enabling strategic growth and consolidation.

Structure of Stock Market

The stock market in India has a well-defined structure, comprising various entities and mechanisms that facilitate the buying and selling of securities. The structure encompasses both primary and secondary markets, each serving distinct functions in the capital market ecosystem.

  1. Primary Market:

The primary market is where new securities are issued and initially offered to the public. It consists of the following elements:

    • Issuer: The company or entity that issues new securities to raise capital. This can include initial public offerings (IPOs) and additional offerings.
    • Underwriter: Investment banks or financial institutions that facilitate the issuance by committing to purchase the entire issue and then selling it to the public.
    • Registrar and Transfer Agent (RTA): Entities responsible for maintaining records of shareholders and processing share transfers.

  2. Secondary Market:

The secondary market is where existing securities are traded among investors. The primary components include:

    • Stock Exchanges: Platforms where buyers and sellers come together to trade securities. In India, the two primary stock exchanges are the Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE). They regulate and oversee the trading activities and ensure market integrity.
    • Brokers and Sub-Brokers: Intermediaries authorized to facilitate securities transactions on behalf of investors. They act as a link between investors and the stock exchanges.
    • Depositories: Entities that hold and maintain securities in electronic form. In India, the two central depositories are the National Securities Depository Limited (NSDL) and the Central Depository Services Limited (CDSL). They facilitate the electronic transfer of securities.
    • Clearing Corporation: Entities that handle the clearing and settlement of trades, ensuring the smooth and secure transfer of securities and funds between buyers and sellers. In India, the National Securities Clearing Corporation Limited (NSCCL) and the Clearing Corporation of India Limited (CCIL) play crucial roles.
    • Custodians: Institutions responsible for safeguarding and holding securities on behalf of investors. They provide custodial services to institutional investors, foreign institutional investors (FIIs), and high-net-worth individuals.

3. Regulatory Authorities:

Regulatory bodies oversee and regulate the functioning of the stock market to ensure fair practices, investor protection, and market integrity. In India, the Securities and Exchange Board of India (SEBI) is the primary regulatory authority governing the securities market.

  1. Investors:

Investors are individuals, institutions, or entities that participate in the stock market by buying and selling securities. They can include retail investors, institutional investors, foreign investors, and other market participants.

  1. Market Intermediaries:

Various intermediaries facilitate different functions in the stock market. These include investment advisors, merchant bankers, credit rating agencies, and financial institutions that contribute to the smooth operation of the market.

  1. Indices:

Stock market indices provide a benchmark for measuring the performance of the overall market or specific segments. In India, prominent indices include the Nifty 50 and the Sensex.

  1. Market Surveillance and Compliance:

Surveillance mechanisms and compliance functions ensure that the market operates within regulatory frameworks. This includes monitoring for market abuse, insider trading, and other malpractices.

  1. Technology Infrastructure:

The stock market relies on advanced technological infrastructure to facilitate trading, clearing, and settlement processes. Electronic trading platforms, data dissemination systems, and secure networks contribute to the efficiency of market operations.

Players in Stock Market

The stock market involves various players, each playing a distinct role in the buying, selling, and overall functioning of the financial markets. These participants contribute to the liquidity, transparency, and efficiency of the stock market.

  1. Investors:

    • Retail Investors: Individual investors who buy and sell securities for personal investment. They include small-scale investors, often trading through brokerage accounts.
    • Institutional Investors: Large entities like mutual funds, pension funds, insurance companies, and hedge funds that invest on behalf of a group of individuals or their members.

  2. Stock Exchanges:

    • Bombay Stock Exchange (BSE): One of the major stock exchanges in India.
    • National Stock Exchange (NSE): Another significant stock exchange, known for electronic trading and providing a platform for various financial instruments.

  3. Brokers and Sub-Brokers:

    • Brokers: Facilitate securities transactions between buyers and sellers. They may be full-service brokers providing a range of services or discount brokers offering lower-cost trading.
    • Sub-Brokers: Individuals or entities affiliated with brokers, authorized to facilitate trades on their behalf.

  4. Market Intermediaries:

    • Merchant Bankers: Facilitate the issuance of new securities in the primary market and provide financial advisory services.
    • Underwriters: Guarantee the sale of newly issued securities, ensuring that the issuing company receives the intended capital.

  5. Depositories:

    • National Securities Depository Limited (NSDL): A central securities depository in India, holding securities in electronic form.
    • Central Depository Services Limited (CDSL): Another central depository facilitating the electronic holding and transfer of securities.

  6. Clearing Corporations:

    • National Securities Clearing Corporation Limited (NSCCL): Handles clearing and settlement for equity and derivatives segments.
    • Clearing Corporation of India Limited (CCIL): Manages clearing and settlement for fixed income and money market instruments.

  7. Regulatory Authorities:

    • Securities and Exchange Board of India (SEBI): The regulatory body overseeing the securities market in India, responsible for investor protection and market integrity.

  8. Corporate Entities:

    • Listed Companies: Companies whose shares are listed on stock exchanges, allowing them to raise capital and provide ownership to shareholders.
    • Unlisted Companies: Companies that are not listed on stock exchanges.

  9. Research Analysts and Advisory Firms:

Professionals and firms providing research, analysis, and investment advice to investors. They play a role in guiding investment decisions.

10. Credit Rating Agencies:

Entities that assess the creditworthiness of issuers and their securities, providing credit ratings to assist investors in evaluating risk.

11. Custodians:

Financial institutions responsible for the safekeeping of securities on behalf of investors, particularly institutional investors.

12. Government:

The government, through various agencies, can influence the stock market through fiscal and monetary policies, regulations, and initiatives.

13. Media:

Financial news outlets and media play a role in disseminating information about market trends, company performance, and economic developments, influencing investor sentiment.

14. Arbitrageurs and Speculators:

Individuals or entities engaging in arbitrage (exploiting price differences) and speculation (betting on future price movements) to profit from market inefficiencies.

15. Technology Providers:

Companies providing technology infrastructure, trading platforms, and data services essential for the operation of electronic trading in the modern stock market.

Management Notes

Cashless banking

indiafreenotesby indiafreenotes1

A cashless society describes an economic state whereby financial transactions are not conducted with money in the form of physical banknotes or coins, but rather through the transfer of digital information (usually an electronic representation of money) between the transacting parties. Cashless societies have existed from the time when human society came into existence, based on barter and other methods of exchange, and cashless transactions have also become possible in modern times using credit cards, debit cards, mobile payments, and digital currencies such as bitcoin. However this article discusses and focuses on the term “cashless society” in the sense of a move towards, and implications of, a society where cash is replaced by its digital equivalent in other words, legal tender (money) exists, is recorded, and is exchanged only in electronic digital form.

Such a concept has been discussed widely, particularly because the world is experiencing a rapid and increasing use of digital methods of recording, managing, and exchanging money in commerce, investment and daily life in many parts of the world, and transactions which would historically have been undertaken with cash are often now undertaken electronically. Some countries now set limits on transactions and transaction values for which non-electronic payment may be legally used.

Benefits:

Reduced business risks and costs

Cashless payments eliminate several risks, including counterfeit money (though stolen cards are still a risk), theft of cash by employees, and burglary or robbery of cash. The costs of physical security, physically processing cash (withdrawing from the bank, transporting, counting) are also reduced once a business goes completely cashless, as is the risk that the business will not have enough cash on hand to make the change.

Reducing transmittal of disease via cash

Cash provides a good home for disease-causing organisms (i.e. Staphylococcus aureus. Salmonella species, Escherichia coli, COVID-19…). However, cash has been found to be less likely to transmit disease than commonly touched items such as credit card terminals and pinpads. Such concerns prompted the German central bank, Deutsche Bundesbank, to state that “Cash poses no particular risk of infection for public”.

Transaction speed

Restaurant chain Sweetgreen found cashless locations (with customers using payment cards or the chain’s mobile app) could process transactions 15% faster.

Elimination of high-denomination notes for purposes of reducing criminal activity

One significant societal advantage cited by proponents is the difficulty of money laundering, tax evasion, performing illegal transactions, and funding illegal activity in a cashless society. Many countries have regulated, restricted, or banned private digital currencies such as Bitcoin, partly to prevent illegal transactions. Large amounts of value can also be stored in real estate, antiques, or commodities like diamonds, gold, silver, and platinum.

Some have proposed a “Reduced cash” system, where small bills and coins are available for anonymous, everyday transactions, but high-denomination notes are eliminated. This would make the amount of cash needed to move large amounts of value physically awkward and easier to detect. Large notes are also the most valuable to counterfeit.

Better collection of economic data

Rather than conducting “Costly and periodic” surveys and sampling of real-world transactions, “real data” collected on citizens’ spending can assist in devising and implementing policies that are deduced from actual data. With recorded financial transactions, the government can better track the movement of the money through financial records which enables them to track the black money and illegal transactions taking place in the country.

Flexibility

With advanced technology and payment systems at our disposal, going cashless is as good as having cash. You can use your money in several different ways, and often almost instantaneously. So, purchase air tickets, pay off your home loan EMI, or buy a life insurance policy without having to arrange for cash.

Easier consumer budgeting

As digital payments are made, transactions are kept in records. Cashless payments facilitate the tracking of spending expenditure and record the movement of money. Having recorded transactions, it can help citizens to refine their budget more efficiently because people can see their recorded transactions in their bank account and know where their ingoing’s and outgoings are occurring.

Management Notes

Mobile App based financial services

indiafreenotesby indiafreenotes0

Mobile Banking

It has been predicted that by 2025, approximately 4 billion people will use mobile banking and the users will be able to use apps to track, transact and spend from their apps. Apart from just attracting customers with the ease with which the apps work, the exposure to these apps also attracts prospective employees. All employees want to work with an employer who is represented by cutting edge technology and attractive apps.

Mobile Payments

A large number of users are now using mobile apps to make bill payments for various utilities like phone use, electricity bill, credit card bill, etc. This can easily be done through apps for mobile services. Payments always involve some amount of confidentiality and privacy. Apps help the users to keep the information confidential and safe. As the connectivity across areas and platforms is increasing, the mobile apps help the customers to transact with minimal effort and maximum confidentiality. Apart from this, mobile apps also provide many different ways to make the payment:

  • Netbanking
  • Credit card Payment
  • Debit card Payment
  • Mobile Wallets

Increase Business

Mobile Apps also ensure that the financial sector enterprise has maximum business. By making the business more accessible, mobile apps have ensured that the business captures maximum market share and increases sales. By providing safe and secure transactions, mobile apps have strengthened the bond between existing customers and the business as well. This ensures continued patronage and work. Mobile applications from finance organizations can supply underserved clients with a means to manage and leverage investment or business opportunities.

Reduce Operational Costs

The use of mobile apps has also ensured that the operational cost of running the business has been reduced. Mobile apps provide one-stop shops for buying, returning, acquiring, exchanging, and remitting of goods and services. Apart from this, mobile apps have also ensured that there is a seamless, virtual transfer of data from the customer to management and vice versa. Mobile apps have made space for virtual customer help stations and have reduced costs further.

Following the markets

Mobile apps in financial categories may send real-time stock and market warnings to the users’ mobile devices via push notifications. Thus, users may be informed about the performances of the investments anytime. In the finance sector in which responding quickly is important, institutions which have their mobile apps may often be preferred by the users.

error: Content is protected !!